– July 6, 2020
market, people

Some truths cannot be stated too often, including this one: the most important public service performed by economists is to bring to light – to haul, heave, push, pull, or drag into people’s line of intellectual vision – that which is unseen. Competent economists have performed this service from the start.

Adam Smith famously drew attention to the surprisingly good works done by the market’s “invisible hand.” More than 200 years later, Russell Roberts did the same for the market’s “invisible heart.” Frederic Bastiat’s most renowned essay is his 1850 pamphlet “Ce qu’on voit et ce qu’on ne voit pas, ou l’Économie politique en une leçon,” which in English is “What is Seen and What is Not Seen, or Political Economy in One Lesson.” (Note the often-neglected subtitle, which nearly a century later inspired the title of Henry Hazlitt’s most celebrated book.) And identifying unintended consequences – good ones and, especially, bad ones – remains standard fare in every reasonably well-taught ECON 101 course.

But there are different levels of the unseen, all of which are important but not all of which receive the appropriate amount of attention.

Opportunity Costs

The most basic phenomena that are unseen are opportunity costs. Despite Bastiat’s and many subsequent economists’ best efforts, pundits and politicians continue in many cases to ignore costs. For example, they assert that the clouds of destruction wrought by hurricanes and other natural disasters are silver-lined with economic benefits allegedly arising from the need to fix and rebuild. Many people nod their heads agreeably when reporters describe the newly created need for workers to repair the likes of roads, roofs, factories, and, of course, windows.

The satisfaction that people apparently enjoy when contemplating these “gains” often cause them to shut their eyes when economists point to what is unseen. The labor and materials consumed in repairing and rebuilding after natural disasters are labor and materials that could have been used to produce other goods and services. And so even though after a natural disaster strikes it’s worthwhile to use these inputs to repair and rebuild, this repairing and rebuilding has a cost that most people do not see – namely, the other goods and services that, but for the need to repair following natural disasters, would have been produced.

Opportunity costs are as easy to see, if one would only look, as are the consequences of the laws of arithmetic. If Jen gives one of her apricots to Jim, Jen necessarily has one fewer apricot to give to Janet. Yet the constancy with which most people overlook these costs is astonishing. And so the economist’s work is never done.

Vast Complexity

More deeply than unseen opportunity costs is the modern economy’s unseen complexity. This complexity remains unseen even by some economists.

The market economy’s daily manifestations are always in sight of everyone. People see full supermarket shelves (at least when governments haven’t mandated economic lockdowns!). They see countless goods and services for sale online. People see lights go on when they flip switches, toilets flush when they press handles, and automobiles move when they press accelerators.

And economists see statistics. The unemployment rate. The annual change in the price level. The percentage of workers employed in manufacturing. The number of firms in the domestic furniture-producing industry. The ‘distribution’ of income.

But no amount of marveling at the workings of modern wonders such as artificial lighting and indoor plumbing, and no amount of pondering statistics, reveals the vast, complex order of economic processes that generate these visible surface phenomena. Each pair of socks you wear, each cup of coffee you drink, and each hamburger or sushi roll you eat is the product of countless innovations – some dating back millennia (such as the wheel), others much more recently (such as your coffee-maker’s heating element). Nearly every one of the goods and services that we today routinely consume is produced with inputs that come from all across the globe and are themselves produced only through the efforts of hundreds of millions of specialized producers.

Making all this innovation and consumption possible are markets, guided chiefly by prices, profits, and losses. People operating in markets, of course, use infrastructure, some of which is physical (such as highways) and other of which is ‘institutional’ (such as dispute-resolution systems). Some infrastructure is privately produced; other of it is government-produced. Also necessary is law – the set of expectations that govern human interactions. A tiny fraction of this law is codified and available to be read in books and online.

Most law, however, exists only in people’s shared expectations – their shared understanding of right and wrong, polite and impolite, acceptable and unacceptable. This law is incredibly subtle and often unable to be articulated; it consists only in what individuals sense are the boundaries that define what are the ‘right’ ways to do things and how to engage civilly with others. This uncodified and uncodifiable law enables people to deal with each other fruitfully and without the need for every action to be controlled by some legal formalism.

The complexity of the economic and social processes that make possible even the most mundane of our everyday economic experiences is beyond human comprehension. We are intelligent enough only to know that this complexity exists and to appreciate its importance. We are not, and never will be, intelligent enough to begin to grasp its details or to design processes that serve us better.

Yet this complexity, operating largely in silence and with astonishing success, remains hidden to most people. Supermarket shelves are full with everything from antibacterial ointments to fresh zucchini. Gasoline stations always have gasoline on hand to sell. Jet planes whisk us from London to L.A. Toilets flush. Paris gets fed. We’re as unaware of the incredible and never-ending complex economic operations that make our standard of living possible as we are of the trillions upon trillions of chemical operations performed every minute within the cells in our bodies simply to keep us alive.

Productive Error

A third stratum of economic phenomena that is unseen is productive error. Free markets operate very much according to the logic of natural selection. Many new combinations of resources are tried – new consumer goods, new ways to organize factories, new sources of finance. But only a small handful of these combinations satisfy consumer desires.

Unfortunately, no one knows beforehand whether or not this new idea for a better mousetrap or that new idea for how to produce pasta is really worthwhile. The only way to find out is actually to give it a shot. Many such ‘shots’ fail. Entrepreneurs and investors in these cases lose money. But these failures add to humanity’s knowledge about what are likely, at least at the present time, wasteful uses of resources.

Consumers, such as shoppers in a supermarket, see overwhelmingly only the proven successes. They see the best available containers in which to sell milk, the worthwhile varieties of frozen pizza, and the most efficient ways to enable consumers to pay for their groceries. None of the innumerable past failures is visible; these were weeded out quickly, making room for today’s successes.

The Unseen Is Vast

When an economist reminds you to pay attention to what is unseen, he or she counsels you to humbly understand that a modern market economy is far too complex and inescapably reliant upon trial-and-error experimentation to enable the interventionist schemes that are forever being proposed to succeed. Pay attention. Open your eyes. Behold the marvelous complexity that economics reveals!

Donald J. Boudreaux

boudreaux

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.

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